Dr Nisar Ahmed
A quiet revolution is underway, from the busy streets of Dhaka to the stillness of the rural Sundarbans. The tidal wave of fintech that has swept across the world, fueled with a tapestry of innovation and digital progression. It started to soak Bangladesh. This convergence creates an amazing, generational opportunity to fundamentally transform the nation’s financial systems, and to unlock such growth as we could not have thought possible whilst raising millions out of poverty.
But this sea change is anything but simple. To fully unlock the potential of Bangladesh’s nascent fintech ecosystem, a delicate balance must be struck: a robust promotion of innovation balanced by prudent risk management.
A country in agonies prepares for the digital age
Bangladesh’s large, young, and tech friendly population combined with a growing economy represents the perfect recipe for the most significant growth of fintech. A country of around 20-crore people, the mobile penetration in the nation is just dynamic with 18.5 crore subscribers. More importantly, the number of internet users is fast growing, and the figure is likely to cross 12.4 crore by 2025, the BTRC says. This broad digital connectivity appears to be a basis for scaling the use of Digital Financial Services (DFS) by the large unbanked population.
At the helm: mobile money
Mobile Financial Services (MFS) are the epicenter of Bangladesh’s fintech revolution, revolutionizing how a country of 160 million people manages their finances. The aforementioned market leader, bKash, with 50+ million registered customers. It also greatly expanded the services it offers beyond traditional money transfers (both person to person and person to third-party) and simplified the process of paying essential utility bills. The runaway success of bKash is evidence to the enormous potential for MFS to reach low-income groups, particularly in a country where there has been tradition of banking exclusion for vast segments of the population.
The garment worker in Dhaka, Rahim, puts it back to bKash: “Before bKash, the process of sending money to my family in the village was a long, formal process. I can now send money on the fly from my cell phone, which saves me time as well as hassle. It has truly been a life-changer for me personally.”
Besides bKash, strong competitors like Rocket (DBBL’s branchless banking business) and Nagad (BD Post Office) also ensure that Bangladesh has a lively and competitive MFS ecosystem. They provide various products and services, serving customers' changing requirements. The strategic emphasis of Rocket in rural markets and the supportive cooperation of Nagad with the postal network, to reach the excluded people from the long-range of development, have played a crucial role in bringing financial inclusion to those who were not historically privileged, showing the multi-dimensional aspect of this fintech revolution.
Beyond MFS: an ecosystem in full bloom
Other fintech categories are also being quickly warped under the command of MFS and will provide more actionable examples. Using technology, these new platforms provide loans to individuals and small businesses often neglected by banks. Take ShopUp, a startup that makes the credit underwriting process more efficient by using transaction information to analyze the creditworthiness of businesses, offering much-needed capital to companies that would otherwise have never been able to achieve financial inclusion.
As one advocate reported, "Small businesses often find it difficult to obtain funding from traditional banks due to onerous collateral demands and massive paperwork. And “we use their sales data and transaction history to give them a credit score that makes it easy for them to access the capital they really need.
E-commerce behemoths like Daraz and, in the past, Evaly, too, have been a strong force behind the adoption of online payment, nudging Bangladesh into its journey towards a cash-light economy. These disruptive players have brought to market digital highways enabling digital meters, and therefore the advancement of the general public towards digital transaction adoption via digital payment rails.
The great possibility of fintech for inclusive growth
Bangladesh’s large, young, and tech friendly population
combined with a growing economy represents the perfect
recipe for the most significant growth of fintech. A
country of around 20-crore people, the mobile penetration
in the nation is just dynamic with 18.5 crore subscribers
The potential for fintech to help unlock even more inclusive economic growth in Bangladesh is limitless:
· Financial Inclusion: Fintech has the potential to empower the unbanked and underbanked by including them in the financial mainstream. That means providing financial products that are high quality and low cost all at once—whether the end product is corporate finance loans and SME loans or everyday savings, credit and insurance—which is delivered directly to our customer. With many members of the population currently unbanked, they provide a very practical alternative, potentially allowing for more citizens to be able to access financial services.
· Enabling SME engines: SMEs are the backbone of Bangladesh's economy, accounting for 25% of GDP and acting as one of the principal providers of employment. Fintechs are well placed to support SMEs with vital access to funding, digital tools and access to markets that all help them grow and
create jobs.
· Facilitation of transactional efficiency and transparency: Fintech is supposed to bring greater efficiency to the financial sector, dramatically lower transaction costs and improve transparency. These innovations are critical in fighting corruption and leakage within government programs, and they enable welfare benefits to reach their intended beneficiaries more efficiently.
Fostering Innovation and Entrepreneurship: By nature, small and medium size fintech companies are dynamic which inherently stimulates innovation and entrepreneurship. Strong digital footprints, broad financial inclusion and supportive public policies would all combine to inspire start-ups to create tailored solutions for their domestic problems.
Negotiating problems and obstacles
Although the fintech revolution in Bangladesh has enormous potential, it is also marked by substantial challenges:
· Uncertainty: Regulatory uncertainty always accompanies the birth of a new industry, and this uncertainty can be enough to stymie innovation and hinder investment. Transparent, predictable criteria are needed to enable fintech companies to function in an environment free of unnecessary changes. Currently MFS and digital payments are regulated by the central bank, Bangladesh Bank, and draft regulations are in development for emerging tech such as blockchain and cryptocurrency.
· Cyber threats: As digital financial services grow daily, the system is increasingly at risk of high-tech cyber threats. When data is hacked or synthetic identities are used, consumer faith can diminish, and the entire financial system can be undermined. Strong cyber security practices, such as robust encryption, multi-factor authentication, and routine security checks, are necessary to protect consumer data and build trust.
· Digital Literacy Divide: For a large percentage of the populace, they don’t have the necessary digital literacy for an optimal experience to realize maximum value from digital financial services. There are still a lot of people who are clueless about mobile banking apps, online payment gateways and other digital methods. As a result, holistic programs are required, that invest into digital literacy-facilitating potential users to learn all benefits of and take full control over a DFS product. Social enterprises such as BRAC OR Grameen Telecom are already playing an extraordinary role in increasing digital literacy in rural areas.
· Infrastructure Handicaps: In areas which are predominantly rural, inadequate access both to secure internet as well as electricity remain barriers to widespread adoption of digital finance. We must also invest in our digital financial infrastructure, ensuring all our citizens have equitable access to finance, no matter where they may be.
· Cultural Inertia: Legacy banking habits and a high reliance on cash can act as insurmountable obstacles to adopting of digital financial services. Generating trust and encouraging user behavioral change requires targeted awareness campaigns, culturally sensitive marketing approaches.
The path forward collaboration
The great dividends from Bangladesh’s fintech revolution will only flow through the united and harmonic collaboration of the government, the regulators, the legacy banks, the fintechs, and the NGOs.
· Government and Regulators: Need to accelerate intervention to make sure they have rational policies and regulations and help in developing a well-constructed investment roadmap.
· Financial Institutions: Encouraged to partner with fintech companies to develop and scale financial services together.
· Fintech: Need to focus on deploying cost-effective and user-friendly solutions custom-made for Bangladeshi market specifics.
· CSOs: Are instrumental in driving efforts to raise digital literacy and awareness so that the transformative benefits of fintech can reach even the most excluded.
A country at a crossroads
Bangladesh is at a historical crossroad in its development journey. There is no greater opportunity to transform the lives of millions, ignite robust economic growth, and fundamentally reinvent our nation’s financial landscape than the fintech revolution. By tackling these challenges with commitment and imbuing its fintech ecosystem with a truly spirit of collaboration, Bangladesh can unlock its fintech future, bring in an era of financial inclusion, and play an even more significant role in the economy and overall quality of life of all of its people. The path through these opportunities and hazards will certainly be complex, but the rewards could be boundless. And that Bangladesh holds this promise for its fintech future.
Author: Dr Nisar Ahmed. He is the Treasurer of American International University-Bangladesh. He can be contacted at nisarsn@aiub.edu.
